The Corporate Criminal as Scapegoat

Earlier this month, federal district Judge Richard J. Leon rejected outright a deferred prosecution agreement with a company, “looking at the DPA in its totality,” and noting that not only were “no individuals . . . being prosecuted for their conduct at issue here” but also “a number of the employees who were directly involved in the transactions are being allowed to remain with the company.” No federal judge has done such a thing before. But Judge Leon’s ruling may only be the beginning, if the practice of charging companies and not individuals continues without real reforms.

A corporate criminal is no scapegoat, assures the Department of Justice, because it is always a priority to target all culpable individuals at a company. DOJ policy emphasizes how “rarely” should “probable individual culpability not be pursued, particularly if it relates to high-level corporate officers.” After all, under the respondeat superior standard that applies in federal criminal cases, a corporation can be prosecuted if and only if an employee committed a crime. Yet, it is far from the case that “only rarely” are individuals not pursued when a corporation is criminally targeted. As is increasingly the subject of high-profile criticism, more often than not, when the largest corporations are prosecuted federally, individuals are not charged. In my new Article, I present data exploring the paths these individual prosecutions take—which tend to result in light sentences when convictions are obtained. These data illustrate the special challenges of bringing corporate prosecutions, and they suggest why bringing more individual cases is no adequate substitute for prosecuting companies.

The corporation appears to be a kind of a scapegoat: perhaps not entirely blameless, as in the traditional concept—but literally impossible to actually jail—yet capable of receiving the brunt of blame and punishment, while the individual culprits go free. I present this problem in my recent book, titled Too Big to Jail. There I describe how in about two-thirds of deferred and non-prosecution agreements with companies, no individual officers or employees were prosecuted for related crimes (66 percent, or 201 of 303 agreements). The problem becomes still more troubling and complex when one asks what occurs when individual officers and employees are charged. That is what I set out to do in my subsequent Article. I study the outcomes in those cases in some detail. From 2001-2014, prosecutors entered 306 deferred and non-prosecution agreements with companies. Among those, 34% or 103 companies had officers or employees prosecuted, with 408 total individuals prosecuted. Most were not high-up officers of the companies, but rather middle managers of one kind or another. Of the individuals prosecuted in these cases, 13 were presidents, 26 were CEO’s, 28 were CFO’s, and 59 were vice-presidents.

What happened in these cases? Of the 412 individuals, 266 pleaded guilty, or 65%. Forty-two were convicted at a trial. How were convicts sentenced for these corporate crimes? The average sentence was 18 months. The average sentence among those who did receive prison time was higher—40 months. But it was only 42% or 128 of the 308 individuals convicted who received any jail time. This is a low imprisonment rate (I compare these data to U.S. Sentencing Commission data regarding similar categories of federal crimes). To be sure, many convicts paid large fines. Of the individuals prosecuted, 144 individuals were fined, with an average $382,000 fine.

Of still greater concern were the large numbers of prosecution losses: 15% of the cases were unsuccessful, which as I develop in the Article, is far higher what is typical in federal white-collar prosecutions. Fifty-two individuals had charges dismissed pretrial. Eleven were acquitted at trial. Still other cases were not ultimately successful; nine had convictions reversed on appeal. In addition, 38 individuals were charged but have not been convicted, either because the cases are still pending, or individuals are fugitives or have not been successfully extradited.

“There is no such thing as too big to jail,” Attorney General Eric Holder announced in a video message in May 2014, underscoring that no financial institution “should be considered immune from prosecution.” Yet it is increasingly common to hear complaints, including from prominent politicians, judges, journalists, and academic commentators, that the government has not prosecuted those who committed corporate crimes. Federal Judge Jed Rakoff has offered the most prominent critique of this problem, arguing prosecutors are too quick to settle with corporations on lenient terms after hasty investigations; he concludes prosecuting individuals would be more effective.

The relative lack of individual prosecutions raises a puzzle: one might expect it to be far easier for prosecutors to bring white-collar cases when they benefit from the company’s full cooperation. Moreover, there is a separate scapegoating concern that when employees or individuals are charged, higher-ups, who may control negotiations with prosecutors, may themselves remain above the fray while lower-level employees are “thrown under the bus.” Critics are right to suggest that prosecuting individual employees has not been a priority in a range of corporate crime areas, but not others—with, for example, antitrust being an exception—suggesting that Department of Justice priorities could change. Although such cases have largely escaped criticism, it may be just as problematic or more so when only individuals are prosecuted and not the corporation. Justice is not fully served by individual prosecutions if only the company can pay adequate fines, restitution to victims, or change practices and policies to prevent future crimes. Neither individual nor corporate prosecutions are necessarily a ready substitute for one another.

On the basis of my findings, I explore three ways in which corporate prosecutions could be reformed to enhance individual criminal accountability. First, I propose extending statutes of limitations for categories of complex corporate cases. The Speedy Trial Act could be revised to permit deferred prosecutions for corporations only if the firm cooperates to identity culpable individuals. Sentencing statutes and guidelines could be revised to similarly tighten requirements for corporate cooperation. Second, I explore changes to DOJ policy and practice. In some areas, prosecutors may have rested secure having obtained a corporate settlement with eye-catching fines. Using corporate prosecutions to bring individuals cases would require stricter policies and added resources for investigations and enforcement. A third approach, emerging in a few recent cases, uses corporate settlements to change the incentives for employees and officers at the firm, using what I have termed “structural reforms” to prevent future criminality.

Despite DOJ policy that “only rarely” should “culpable individuals” not be prosecuted, individual prosecutions are far and few between with uneven results. The status quo is ripe for reform. Corporate prosecutions need not come at the cost of individual accountability—corporate prosecutions can and should be used to enhance individual accountability and to deter corporate crime.